The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Maintains Entity Ratings of Reliance Weaving Mills Limited

Rating Type Entity
(28-Jun-19 )
(31-Dec-18 )
Action Maintain Upgrade
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings reflect sound business profile of Reliance Weaving Mills Limited (Reliance Weaving). Over the years, the Company’s revenues are on a growing trajectory, a factor of continuous BMR translating into operational efficiencies and higher production volumes. The Company has sustained its overall margins, despite challenging textile industry dynamics. Meanwhile, international yarn market has remained under pressure, which has stagnated yarn prices in local market. Hiked cotton price and rising interest rates have exerted pressure on the Company’s business profile. However, significant rupee devaluation and subsidized energy rates for textile sector has provided a requisite breather to the Company, which, in turn, translated in better margins. Fatima Group has parked a strategic investment in energy sector with Reliance Weaving. However, it is still evolving and yet to generate any profits. The Company has a relatively stretched financial profile, reflected in higher leveraging and short-term debt vis-à-vis self-liquidating current assets. Cognizant of these issues, the management is in process of re-profiling its balance sheet in favor of long term debt. The assigned ratings incorporate strong sponsors support demonstrated by explicit guarantee provided by majority sponsors on all debt related obligations of the Company.
The ratings are dependent on the management's ability to prudently mange the liquidity and debt profile of the Company, particularly working capital, while sustaining its business margins. Going forward, support from sponsors would remain critical.

About the Entity
Reliance Weaving Mills Ltd. (Reliance Weaving), a listed concern, commenced operations in 1990. The Company is engaged in the manufacturing and marketing of yarn and greige fabric. Reliance Weaving operates with five units, constituting two spinning and three weaving units, having capacities of 61,920 spindles and 392 looms, respectively. The Company caters its power needs via in-house production (12.5 MW), as well as MEPCO and LESCO connections. Fatima Group, a leading corporate group in Pakistan, owns majority stake (79%) in Reliance Weaving. The Group has diversified interests in fertilizer, sugar, textile, energy, transmission, packaging, and foreign trade.

The board comprises seven members; five directors are representatives of sponsoring group – including two executive directors, the remaining two are independent directors. Mr. Fawad Ahmed Mukhtar is the Chairman of the BoD. The board members have diversified experience, and relatively long association with the Company. Mr. Faisal Ahmed (Executive Director), a textile industry veteran, primarily manages the Company’s affairs. He is supported by a team of seasoned professionals.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.